According to Economists, This Is the Main Reason for Underpricing

question 76

Multiple Choice

According to economists, this is the main reason for underpricing of new issues.

• A)Lack of competition among existing investment banks.
• B)Entry of banks into the investment banking sector.
• C)Monopoly power of the existing investment banks.
• D)Mismatch of demand and supply of securities.
• E)Risk premium for information advantage possessed by issuers.

---

Definitions:

Maximum Price

A price cap, often set by regulators, beyond which a product or service cannot be sold to prevent exploitation or ensure affordability.

Additional Unit

An extra item or quantity added to an existing lot or production level.

Law of Demand

An economic principle stating that as the price of a product decreases, consumer demand for the product will increase, and vice versa.

Inverse Relationship

A situation where two variables move in opposite directions, meaning as one variable increases, the other decreases.